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Advisers suggest planning for day when coverage could be taken away

Increasingly, companies have been looking for ways to get out from under health care obligations. Bankruptcy is a preferred method for easing those burdens.

The Wall Street Journal reported March 17 on the plight of 10,000 retired coal miners and 13,000 dependents whose health care benefits are on the chopping block as a result of Patriot Coal Corp.'s petition to the U.S. Bankruptcy Court in the Eastern District of Missouri to modify a contract Patriot's predecessor company had with a union. Thousands of those affected are under 65 and aren't yet eligible for Medicare, the Journal reported.

Public-sector retirees in municipalities face a similar threat. A recent study from Michigan State University found that cities and townships in that state are facing some $13 billion in unfunded health care costs for retired public workers. Embattled Detroit alone owes $5 billion in these expenses.

Not surprisingly, advisers said that now is a good time to start thinking about fallbacks to address the chance that a retired client's benefits might get taken away.

“If anything, you should worry about your health care being there,” said Leon C. LaBrecque, chief executive of LJPR LLC. “If you're under a collective-bargaining agreement, then it's only good for the duration of the agreement. And if you're not, then retiree health care is at the whim of the employer.”

WORST-CASE SCENARIOS

In one of his worst-case scenarios, a client of Mr. LaBrecque's watched his retiree health care coverage rise from $0 to $574 per month when the municipality he had worked for decided to cut costs.

Brian D. Fenstermaker, an adviser with Envision Consulting Group LLC, has worked with a number of American Airlines Inc. retirees in similar straits as the company emerges from Chapter 11 bankruptcy protection.

“Building a contingency [for the possible loss of retiree health care benefits] is an important part of any plan,” he said. “It's disconcerting to the clients: You expect one thing, and you have the rug pulled out from under you.”

In the best of scenarios, soon-to-be retirees can budget for the possibility that they will have to pay for some portion of health care costs. If they retire before 65, it's a matter of getting the client to Medicare age eligibility. Mr. Fenstermaker uses calculators, including ones from Nationwide Financial Services Inc. and HealthView Services Inc., to estimate the cost of care.

Mr. LaBrecque noted that even after a client is eligible for Medicare, advisers need to get clients thinking about Medigap policies, which can supplement costs that aren't covered by Medicare.

In the end, however, the sooner clients begin budgeting for the possibility that they may have to cover part or all of their own health care costs, the better off they will be as employers try to shake out long-standing liabilities. “The old protections afforded by collective bargaining are falling away rapidly,” Mr. LaBrecque said. “Many people assume they'll have health insurance in retirement and that they'll be fine.”